SD-366Energy Committee Hearing Room02:30 PM

Ms. Betsy Cody

Senate Committee on Energy and Natural Resources Subcommittee on Water and Power

February 28, 2006

The Bureau of Reclamation’s Title XVI Program: Implementation Issues

Thank you Madame Chairman for the opportunity to appear before the Subcommittee today. I have been asked to provide Members of the Subcommittee with background information on the Bureau of Reclamation’s Title XVI water reuse and reclamation program, as well as to highlight issues in its implementation. My testimony begins with a brief discussion of the broader context in which this program is being implemented, conflicts that have arisen in implementation, and fundamental issues facing the 109th Congress regarding the program’s future. As requested, my testimony also provides background on the Title XVI program, including its genesis, and where it stands today.

Context of Title XVI Implementation in 2006 Growing populations and changing values have increased demands on water supplies and river systems, resulting in water use and management conflicts throughout the country. These demands are particularly evident in the arid West, where population has increased dramatically since Title XVI was first authorized, and where climate variability makes managing water supplies especially challenging. In many western states, agricultural demands are often in direct conflict with urban demands, as well as with water demand for threatened and endangered species, recreation, and scenic enjoyment. Areas where these conflicts are especially prevalent are illustrated in a figure developed by the Department of the Interior to display potential areas of conflict over water resources, or “Hot-Spots” (see Appendix A). Further highlighting the population issue is a U.S. Geological Survey illustration showing recent population growth in the western states (see Appendix A).

Debate over western water resources revolves around the issue of how best to plan for and manage the use of this renewable, yet sometimes scarce and increasingly sought after, resource. Some observers advocate enhancing water supplies, such as through building new storage or diversion projects, expanding old ones, and funding water reclamation and reuse facilities. Others emphasize managing existing supplies more efficiently — through conservation and revision of policies that are seen as encouraging inefficient water use, such as using market mechanisms or providing better price signals, which theoretically would result in more efficient water use. In practice, all of these tools are used by western water managers to varying degrees; and all have been addressed by Congress, again to varying degrees.

To address some of the growing challenges in western water management in the early 1990s, Congress directed the Secretary of the Interior (Secretary) to establish a federal water reclamation, recycling and reuse program (Title XVI of P.L. 102-575; 43 U.S.C. §390h). Under the Title XVI program, the Secretary is directed to “investigate and identify” opportunities for water reclamation and reuse in the West, for design and construction of “demonstration and permanent facilities to reclaim and reuse wastewater, and to conduct research, including desalting, for the reclamation of wastewater and naturally impaired ground and surface waters” (43 U.S.C. §390h(a)).

Today, the Title XVI program seems to be at a cross-road. The program has been controversial in recent years because of concerns over its implementation. As reuse and desalination have become more viable options for addressing a variety of water management issues, the number of legislative proposals for Title XVI project authorizations has increased. At the same time, Administration support for the program has encountered many changes — from full support prior to enactment of Title XVI in 1992 — to the present, where the Administration has found it cannot support much of the proposed legislation to authorize new projects. Also during this time, congressional authorization of new projects has been significantly less than demand. This situation has created frustration and confusion over the existing program, its future, and to some degree, the future role of the Bureau of Reclamation in the rapidly growing West. Frustration is especially apparent among project sponsors whose authorized projects remain unfunded or receive limited funding, and sponsors of pending project proposals, resulting in increased pressure on Congress and the Administration to address program issues.

Title XVI Overview The Bureau of Reclamation’s Title XVI program is the only active federal program providing localities with financial and technical assistance for the development and construction of facilities for the reuse of wastewater and reclamation (including desalination) of impaired surface and ground waters. Although both the U.S. Army Corps of Engineers and the EPA have limited authorities to provide assistance to local entities for recycling projects (e.g., specific provisions in 1992 and 1999 Water Resources Development Acts, a pilot program by EPA under the Alternative Water Sources Act, and general Clean Water Act water treatment and wastewater authorities), neither has an established, regularly funded program dedicated to such activities. However, in its review of federal agency programs, CEQ found that “a broad range of federal agency program activities employ water reuse, recycling, and reclamation technologies to achieve conservation and other program objectives.”

Program Beginnings In 1992, Congress directed the Secretary to establish a program to investigate and identify opportunities for wastewater reuse and reclamation of naturally impaired ground and surface waters in the 17 western states (Reclamation Wastewater and Groundwater Study and Facilities Act, Title XVI of P.L. 102-575; 43 U.S.C. §390h(a)). Responsibility for undertaking the new program — commonly referred to as the Title XVI program — was assigned to the Department of the Interior’s Bureau of Reclamation (Reclamation). As part of the original authorizing statute, the Secretary is directed to undertake appraisal investigations to identify opportunities for water reclamation and reuse, and is authorized to participate with federal, state, regional, and local authorities in developing feasibility studies.

The genesis for Reclamation’s wastewater reclamation, recycling, and reuse program was a 6-year western drought of the late 1980s and early 1990s. The drought hit California and the Southwest particularly hard. In response, this subcommittee and its House counterpart, the House Resources Water and Power Subcommittee, spent much time debating federal water supply policies, including how to address conflicts between the need and desire for continued operation of federal reclamation projects and the application of state and federal environmental laws that could potentially limit water deliveries to protect certain species or to comply with water quality standards. The result of several years’ effort in addressing this conflict was the Reclamation Projects Authorization and Adjustment Act of 1992 (P.L. 102-575). While much attention has been paid to Title XXXIV of this Act (the Central Valley Project Improvement Act), Title XVI, the Reclamation Wastewater and Groundwater Studies and Facilities Act, authorized construction of five specific water reuse and reclamation projects in Arizona and California and established what is known as the Title XVI program. The Act also authorized a comprehensive reuse study for Southern California, including Colorado River hydrologic regions. The latter provides specific statutory authority for activities that were underway in 1991 in response to then-Secretary Manuel Lujan’s announcement of a “Comprehensive Water Reuse Initiative” for Southern California and speaks to what was perceived to be an important federal interest in the management of the Colorado River. In addition to increasing the water supplies available to the area [southern California], this program would also decrease the area’s dependency on water imports from the Colorado River, California, and Los Angeles Aqueducts, help restore and protect the quality of existing ground-water reserves, and help meet environmental water needs. Lujan said ... “Reclaimed water — one of the most dependable, abundant and underutilized water supplies available — could provide as much as 2 million acre-feet of water each year for the area.”

The completion and submission of this study and whether or not it is a “feasibility study” has a long history and has remained a point of contention among southern California stakeholders and Reclamation to this day. In sum, this large undertaking (capable of producing 450,000 acre-feet of water annually), which is directly linked to the Title XVI program’s creation, became caught up in apparent shifts in Administration policy on, and congressional oversight of, the Title XVI program.

Title XVI Today Title XVI has been amended multiple times since 1992, resulting in a total of 31 currently authorized projects in 8 western states and Hawaii (see Table 1). To date, Reclamation has undertaken planning, design, and/or engineering activities for 21 projects. Although the program includes projects for both water reuse and desalination of saline water (both brackish groundwater and seawater), the majority of Title XVI projects have been authorized for reclamation of municipal wastewater.

Nearly half of the projects are concentrated in southern California. This concentration reflects the direction of the program as first authorized. Most of the largest projects were authorized in 1992, before federal contributions were capped.

Project Funding. The federal share of project costs under Title XVI is limited to 25% of total project costs. Amendments in 1996 (P.L. 104-266) authorized numerous new projects, and added new program guidance. Specifically, the amendments retained the 25%/75% federal/non-federal cost share, but limited the federal share of costs to no more than $20 million per project.

Reclamation has completed its funding obligations for three projects: 1) the Los Angeles (CA) area water reclamation and reuse project; 2) the Tooele (UT) wastewater treatment and reuse project; and 3) the Port Hueneme (CA) Desalination project. Title XVI funding obligations are nearly complete (80% or more complete) for several other projects: San Gabriel Demonstration (CA); North San Diego County (CA); Orange County Regional (CA); Mission Basin Desalination (CA); Albuquerque Metropolitan (NM); and the City of El Paso (TX). Projects authorized prior to the 1996 amendments ranged in total costs from $152 million ($38 million for Reclamation’s share), to $690 million ($172 million for Reclamation’s share). Post-1996 projects have been much less expensive, ranging from $10 million ($2 million for Reclamation’s share) to $280 million ($20 million for Reclamation’s share).

Total Title XVI funding through 2006 is estimated by Reclamation to be $324.5 million. (See Table 1.) The remaining total federal contribution for all authorized projects is estimated to be at least $344 million. Non-federal Title XVI investment as of Sept. 30, 2004 is estimated to be $1.1 billion. Title XVI funding for FY2006 is$25.6 million; the budget request for FY2007 is $10.1 million.

Active and Inactive Projects. Projects have been authorized for construction in 9 states: Arizona, California, Hawaii, Nevada, New Mexico, Oregon, Texas, Utah, and Washington. These states represent many of the states that are especially active in reuse, but not all; two very active states, Florida and Colorado, do not have Title XVI projects. Florida is not eligible for Title XVI support because it is not a designated as a “reclamation state,” as defined by the Reclamation Act of 1902, as amended (43 U.S.C. 391).

More than two-thirds of the 31 Title XVI projects have received some Title XVI funding. The 10 authorized projects that have not yet received funding from Reclamation, or received minor amounts, have been deemed “inactive” largely for accounting purposes. Projects shown in italics in Table 1 have not yet received Title XVI funding (with the exception of the Oregon project). Of these 10 projects, CRS has determined that at least 6 are, in some manner, moving forward with local funding.

A total capacity of nearly 800,000 acre-feet of water is slated to be reclaimed by the projects that have received Title XVI funding and for which CRS was able to acquire data (see Table 1). Reclamation estimates that the amount of water to be reclaimed (maximum design capacity) from its active projects is nearly 750,000 acre-feet. The 50,000 acre-foot difference between these estimates represents the total reclaimed water potential of 6 inactive projects for which CRS gathered estimates from project sponsors or project websites. The potential of all inactive projects would necessarily be somewhat higher.

Title XVI Policy Issues Title XVI policy issues generally fall into two categories: broad policy issues, such as the federal role in water supply development (particularly for municipal and industrial (M&I) purposes); and more specific project evaluation and authorization issues.

Broad Policy Issues Historically, federal water resource agencies’ involvement in water supply was limited to developing irrigation projects and multiple use projects. Unlike other areas of water resources management in which the federal role is more prominent (e.g., irrigation, flood damage reduction, and navigation; or providing funding for wastewater and drinking water treatment through federal revolving loan programs), the federal role in water supply development for M&I uses has been secondary to the primary role of state and local governments. Water supply development for M&I purposes largely has generally been incidental to the primary project purposes of large, multi-purpose irrigation, flood reduction, hydro power, and navigation projects, pursuant to congressional policy established in the Water Supply Act of 1958.

While occasional congressional directives have deviated from this policy (including Title XVI), as a general matter, local, regional, or state agencies have been responsible for water supply development, and they have been wary of federal involvement in allocating water.

In recent years, the Administration has maintained that some Title XVI activities (other than research) are not a “core function” for Reclamation and that the Title XVI program “serves a function that is a local responsibility.” However, over the last two decades, Congress has increasingly, and incrementally, authorized the Department of the Interior to participate in construction of approximately 13 water supply projects for small and rural communities, as well as recycling and reuse projects under Title XIV. Although Congress has increasingly passed bills for site specific projects and established the Title XVI program, it has not re-articulated congressional policy regarding the federal role in water supply development since the 1958 Water Supply Act.

Project Evaluation, Authorization, and Funding Issues Recent questions and concerns about the implementation of Reclamation’s Title XVI program appear to have increased in part because of the nature of project evaluation and authorization processes and the lack of a clear program funding process that is typical of other federal water programs. Other federal water assistance programs, such as state revolving loan funds for wastewater and drinking water administered by EPA, have set criteria and competitive processes for project and funding, as do rural water supply programs administered by the USDA. Congress appropriates money annually for these programs; however, project funding is not appropriated by line item, as is the case for Reclamation projects. Instead, depending on the program, states or federal agencies allocate program funding based on program and project eligibility criteria.

Program Criteria and Project Evaluation In contrast to several other federal water programs , there are no legislatively mandated or promulgated development criteria and no competitive grant processes for Title XVI projects. Sections 1603 and 1604 of Title XVI (43 U.S.C. §390h-1(a)-(c) and 43 U.S.C. §390h-2(a)-(c)) establish a project evaluation process, which directs the Secretary to undertake appraisal investigations before preparation of feasibility studies on potential reclamation and reuse measures and lists several “considerations” that must be addressed; however, the Act does not include clear program criteria, such as how to prioritize projects, or qualified eligibility criteria.

To implement the program, Reclamation developed guidelines for the development of Title XVI projects. These guidelines provide more explicit evaluation and feasibility criteria than is provided in the statute. OMB in the past has noted Reclamation’s Title XVI guidelines provide “solid criteria ... to evaluate potential projects prior to funding, and also to monitor and evaluate projects under construction.” These guidelines have never been officially promulgated as official rules or regulations; nor do the guidelines criteria appear to be binding.

Project Authorization Another issue relates to the project authorization process. Reclamation has interpreted the Title XVI authorization as requiring congressional authorization for each project, as is the case for traditional Reclamation projects. Under the evaluation process established in P.L. 102-575, as amended, and implemented by Reclamation, projects are to go through an appraisal phase, a feasibility phase, and receive a feasibility recommendation. Positive recommendations would then be forwarded to Congress for construction approval via a specific project authorization. Authorized projects would then be funded (or not) via the annual Energy and Water Development appropriations bill. However, in practice, many projects authorizations, and pending legislative proposals, are for projects that have not gone through the project evaluation phase outlined in Title XVI. It has generally been Reclamation policy to not support projects that have not gone through the evaluation phase and received a positive feasibility recommendation. At the same time, some projects have undergone what sponsors believe to be extensive evaluation and what they believed was a feasibility-level process. This has resulted in project sponsors’ frustration by the experience, and has resulted in them coming directly to Congress for authorization. Other projects appear to have been authorized by Congress without assessment or feasibility evaluation by Reclamation.

Project Funding Issues Funding for Title XVI projects has been controversial in recent years because of differences in congressional and administration priorities. For example, Reclamation has limited its budget request to projects that have received prior federal funding, while Congress has provided substantially more funding for projects via the annual appropriations process. The budget request for the last 3 years has been 40% - 67% less than the enacted appropriation for each of the last 3 years. The Administration’s request of $10.1 million for Title XVI projects for FY2007 is 40% less than the FY2006 enacted appropriation of $25.6 million.

While there is approximately $1 million-to-$3 million devoted to program management each year, there is no overall program funding per se. Instead, each project is authorized by a separate line item in Reclamation’s Water and Related Resources budget account. The Senate Committee on Appropriations noted, in report language accompanying FY1998 Energy and Water Development Appropriations, its concern about the potential costs of this program and noted that local sponsors who proceed on their own prior to a federal commitment to the project “do so at their own risk” (S.Rept. 105-44). The Committee also noted its support of Reclamation’s efforts to develop criteria to prioritize the authorized projects currently awaiting funding.

The above issues raise several questions. Is new or revised program guidance needed, via a formal rule-making process, congressional action, or both? Would new or revised guidance forestall the issue of projects being authorized by Congress prior to undergoing the Title XVI project evaluation process, or would it would help to alleviate funding issues and controversy over differing administrative and congressional budget priorities?

Where to go from Here?Questions for the 109th Congress Growing pressure on water supplies in the West make it likely that the demand for Title XVI projects and requests for federal assistance, and hence pressure on Congress to approve more projects, will increase. At the same time, the potential for future requests to escalate and create an entirely new class of water supply assistance appears to have increased congressional and administrative concern over the implementation and authorization of new Title XVI projects. Under the current process, the potential result is an ever-growing list of pending Title XVI legislative proposals, and for those gaining congressional approval, a growing list of projects competing for limited appropriations and administration support. Currently, almost a third of the 31 authorized projects are unfunded — a “backlog” the Administration has cited as reason to oppose new authorizations — and 16 additional project authorizations are pending before the 109th Congress.

Thus, the 109th Congress is faced with the question of what should be the future of the Title XVI program?

Fundamental to deciding the future of the program are underlying questions related to the federal role in municipal water recycling specifically, and perhaps municipal water supply more generally. The broader policy issues raised in the implementation of Reclamation’s Title XVI program (particularly whether wastewater reuse and reclamation are local responsibilities or important to Reclamation’s core functions), touch on several policy issues not unique to the Title XVI program. First, they highlight the tension between congressional and Administration priorities. Second, they raise questions regarding the appropriate federal role in water supply development for M&I uses. For example, is Congress redefining the federal government’s role in M&I water supply and treatment as it authorizes new site-specific projects? If not, can or should such changes be made explicit through the kind of debate on implementation that is currently occurring, or through legislation?

To what degree should the federal government provide incentives for water supply development via new technologies, and what geographic, regional, or social factors should be considered if it does so? Lastly, is additional coordination or realignment of certain federal water activities needed to ensure efficient use of scarce federal resources? One or more of the options could be used to address many of the issues associated with these questions.

If Congress decides to affirm a federal role for water reuse in the West, a different set of questions arises: How does promoting or facilitating reuse in the West facilitate other federal goals, objectives, and legal obligations? How could the Title XVI program mesh with other federal activities (e.g., Interior’s Water 2025 challenge grant initiative or CALFED water reuse and storage activities)? Should the program be tied to alleviating demand or reducing existing diversions where endangered species or other fish and wildlife concerns are at issue? Should it be used to help communities drought-proof their supplies, or to slow pressure on agricultural water supplies by possibly slowing conversion of “ag-to-urban” water transfers? Will promotion of recycling and reclamation simply encourage more growth in already water scarce areas? These questions are just a few that have been raised by interested parties in the course of discussing the future of the Title XVI program.

In conclusion, a wide range of options appears to be available for addressing the Title XVI implementation issues addressed above. Legislative options range from dismantling or phasing out the Title XVI program, to strengthening the program, and could include many less drastic adjustments, such as providing Reclamation with clearer direction on why it should carry out these activities. Administrative options could potentially be pursued as well, such as strengthening agency guidelines or developing formal rules or regulations. While there is no silver bullet option likely to be supported by all stakeholders, examining these questions may help clarify differing perspectives on the appropriate federal role in reuse, define goals of federal participation in reuse, and understand the extent of problems with the existing program.

This concludes my testimony. I will be happy to answer questions from the Chairman and other Members of the Subcommittee. Thank you.